Medicare's “Efficiency”

John - I agree with you here, but you should make honest comparisons. You state that Medicare spends only 3% on overhead, but that that 20% of private insurance overhead is sent preventing abuse. Those are only comparable figures if private insurers spend 100% on overhead (which I'm fairly certain is not the case).

A better comparison would be this:

Percentage of overhead dedicated to fighting insurance fraud:
Private insurers: 20%-30%
Medicare: 0%

John - so if Medicare somehow worked well, had truly low overhead costs, no unfunded liabilities, and little or no fraud, would that make it alright?

While yours is a good argument, the only principled response to Medicare is to point out the proper role of government - to uphold and protect the individual rights of life, liberty, property, etc, as realized through the courts, police, and military. Any other services, if provided by the government, must invariably violate one of those individual rights. In this case, the right to your property - to do with your money as you see fit, to support only yourself and those who you freely choose to support.

John -
"We began talking about the various proposals being touted in Washington to fix the cost problem. I asked him whether expanding public-insurance programs like Medicare and shrinking the role of insurance companies would do the trick in McAllen.

“I don’t have a problem with it,” he said. “But it won’t make a difference.” In McAllen, government payers already predominate—not many people have jobs with private insurance.

How about doing the opposite and increasing the role of big insurance companies?

“What good would that do?” Dyke asked.

The third class of health-cost proposals, I explained, would push people to use medical savings accounts and hold high-deductible insurance policies: “They’d have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”

He gave me a quizzical look. We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? “I’ll do three vessels for thirty thousand, but if you take four I’ll throw in an extra night in the I.C.U.”—that sort of thing? Dyke shook his head. “Who comes up with this stuff?” he asked. “Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.”

Instead, McAllen and other cities like it have to be weaned away from their untenably fragmented, quantity-driven systems of health care, step by step. And that will mean rewarding doctors and hospitals if they band together to form Grand Junction-like accountable-care organizations, in which doctors collaborate to increase prevention and the quality of care, while discouraging overtreatment, undertreatment, and sheer profiteering. Under one approach, insurers—whether public or private—would allow clinicians who formed such organizations and met quality goals to keep half the savings they generate. Government could also shift regulatory burdens, and even malpractice liability, from the doctors to the organization. Other, sterner, approaches would penalize those who don’t form these organizations."

-http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=8

John--
That 20% "fraud" number is highly misleading, since the insurance companies are essentially spending some money to avoid having to spend even more an actual treatment of actual people. When you are on the table facing surgery, who do you want making the insurance decision: someone making sure the insurance company they work for is still profitable to stockholders, or someone who will err on the side of "wasting" money so that you get the treatment you need.

Your trust in insurance company bean-counters is admirable. And its understandable, since you can afford to pay if the insurance company says "no."

But that is *not* how a civilized country should treat its people. Health care is not a widget to b subject to routine market forces.

Oh, and you know damn well that the 34 trillion number is BS. Its the cost of medical care carried out forever. No other government spending is analyzed that way. Only the ones that people like you dislike.

I realize that you have a short article primarily aimed at Medicare, but may I suggest you avoid "intellectual laziness" yourself and examine the problems with the insurance industry as well?

Take a look at this article from the New Yorker: http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande

For people who reflexively believe government is bad at everything, it must seem unlikely that a large federal program can do something more efficiently than private markets. But the key is in the inherent advantages the government has.

Medicare undergoes minimal sales and marketing costs, takes no profit and enjoy tremendous economies of scale (that is, being big means cheaper). Mostly though, it's advantage is in underwriting. Most of what insurers spend that admin money on is risk analysis, to prevent themselves from having to insure people who will actually get sick.

Medicare skips all that. THAT's how it is able to run at ~4% admin costs, while insurers of employer sponsored group plans spend ~16% on admin costs (even with the added benefit of dealing with a group instead of individuals).

What's even more telling and alarming though is the admin cost for private insurers to cover individuals. This is an important number, because if we believe the Republicans who say they want to goose private markets to cover more people, those policies will fall in this category unless they can create groups somehow. Private insurers spend a staggering 33% on admin costs for individuals ... again in large part because underwriting is expensive.

So ask yourself, how do all those uninsured individuals ever get coverage without a large federal program? Does anyone have an answer for that?

PS. "Research" from Heritage and Cato - being partisan think tanks whose only job is to come up with the partisan answers their partisan sponsors want - is not reliable.

John - You make a compelling argument but maybe what is missing from the health care debate is how to turn these facts into actionable and successful policies.

- If the private insurers are effective at combating fraud, why do they not propose to fight fraud for medicare? Perhaps they could receive a percentage of the savings they generate which would be a profitable venture for both medicare and private insurers.

- If so much of Medicare spending is on non-essential services, why don't the reform proposals set out to cut non-essential services and divert these savings to covering the uninsured?

- Lastly, why don't the reforms push private insurers to incorporate those things that medicare does well into the private system.

Maybe these are issues that future 20/20 stories need to address while this debate is proceeding.

Please proofread -- "pubic" instead of public and "that" instead of than, and that was on a skim.

rs

No one says Medicare is not full of fraud. So perhaps the 1st step is to find a way to punish those who are cheating the system? I like the idea of having the people finding fraud sharing in the savings as a way to pay for their services.

But the biggest problem with the proposed Universal Health Care is the *fact* that the only way to save significant amounts of money is to limit or ration service. To do that some people will not get something because they are old. After all, why buy a heart for 95 year old grandpa? If you think 95 is reasonable, how about 90? 85? 75? 60? Where do you draw the line and say he or she is too old? Who makes that decision? SOme unelected bureaucrat?
That's the problem with the health care system obama is pushing. And once a system like this is in place it will be impossible to dismantle or to even reduce funding.
While a discussion of Medicare is important, it's the devil we know and have - obama plan is the devil we won't know until it's law - because our congress has a habit of voting for bills without knowing what is included in them - in come cases before they're even *written* !

The information that you gave on the fraud that goes on in Medicare hit home with a vengeance to me. Let me tell you what happened to my sister (who is medically disabled and is receiving disability pay from Social Security as well as being eligible for Medicare due to her disability). About 6 or 7 years ago, she was a patient at a hospital when her purse was stolen. Her credit cards, California ID (she’s not able to drive so it wasn’t a drivers license) and her Medicare card were stolen.

The difference between the private sector and Medicare is enormous. We immediately called the credit card companies and also the credit reporting bureaus to report the stolen cards. The credit cards were immediately made inactive so as to prevent their unauthorized use. Only one card was used for a gas purchase for about $20 before it was “turned off” by the credit card company and she wasn’t responsible for that charge. New cards were issued and there was no further fraud as a result of the stolen credit cards.

The Medicare card? That’s a whole different story. About a month after the card was stolen, there started to be charges made to my sisters account from doctors, medical equipment stores and other areas all through the southwest. These were immediately reported and, of course, my sister wasn’t responsible or the costs didn’t go against her account (although the government paid all of these at the taxpayers expense). When we reported this, it was turned over to an investigator who took the information to “investigate” this fraud. I personally talked to him and asked how long this might continue and he indicated that it usually gets resolved in about 5 years. With a credit card, they can change the card number and the old card can’t be used anymore, with Medicare, since it’s a Social Security number, it can’t be changed and the card can be used forever. We were told that when the monthly or quarterly statement comes to us, we’re to look at it and forward on to the investigator those charges which are not my sisters. We do this each time the statement comes in and the card has made it’s way all throughout the southwest United States from California, to Arizona, to Nevada to New Mexico and the charges range from things like medical tests (for thousands and thousands of dollars) to a plethora of expensive medical equipment like wheel chairs, oxygen etc. It is obvious that it’s not just the “Medicare card” that’s being used now, it’s her card and Medicare number (which is the social security number with and additional letter/number added to it). Also, what is painfully obvious is that by the time my sister has identified the fraudulent charge and informed the investigator of the charge, the charge is 3 to 5 months old and the bad guys have moved on to another area.

Each time, all we can do is contact the investigator and send the information to him. I’ve tried calling the medical equipment retail store where some of the equipment was bought to see if an investigator had been out there and they told me that they had never been contacted. When looking at all the charges that have been paid by Medicare on behalf of my sister that were fraudulent, it amounts to hundreds of thousands of dollars (which Medicare cheerfully tells us is not being charged against my sisters “account”). It is being charged against the taxpayer account however.

The private sector has it figured out. A simple phone call or two and the card that was stolen becomes useless to the bad guys. The credit card company turns off that card and deactivates that card’s number. Medicare honors the little cardboard Medicare card and we’re helpless to get that number “deactivated” because it’s the social security number plus one other alphanumeric character.

Efficiency? You tell me which protects the public’s interests better, the private sector or the public sector. To me, the answer is obvious. What a pain in the butt it is working with the Medicare “fraud” investigators. 6 years and (hundreds of thousands of dollars) and counting to get the Medicare fraud addressed (and it isn’t over yet) and with the credit card companies, it only took a few phone calls and a matter of hours to get that squared away.

John:

You should talk with Mark Litow of Milliman. He is a consulting actuary who performed a study on Medicare vs private plan expense ratios. His study is summarized here:

http://www.cahi.org/cahi_contents/resources/pdf/CAHI_Medicare_Admin_Final_Publication.pdf

By the way, actuaries are the type of expert anlysts that need to be brought into this discussion. They are the "bean-counters" that understand the drivers of health care costs and they can root out BS very quickly. It is no wonder that all of the current reform plans are designed by lawyers and ideological economists. They haven't the training or experience to really solve the current problem.

Thanks for a great article John. Those links were fantastic.

Re: "...much of the 10 to 20 percent private insurance companies' administrative costs is spent on preventing fraud."

This is simple false. My nonprofit organization has studied insurer funding for anti-fraud activities, and it is a small fraction of overall admin costs.

I'm always amazed that some people just make stuff up to support their partisan views.

It'd be much better to have a free market in health care. The arguments for government healh care might as well be made for government provided food, shelter and clothing. Do we really want that?

Also worth considering is how much more expensive Medicare is compared to the initial projections. "The costs of Medicare doubled every four years between 1966 and 1980" per http://en.wikipedia.org/wiki/Medicare_(United_States).

A basic problem government has created with health care is insulating the cost from the consumer: starting with making health coverage deductible for employers. Medicare and Obama's plan will make it even further insulated. This has the effect of driving up demand for services that may not otherwise be purchased. Government spending has also lead to "cost shifting" from government sponsored patients to privately insured patients. This has driven up private health insurance, and driven doctors to avoid taking Medicare patients.

The health care problem is really out of control government spending on health care, not health spending as a percentage of GDP.

Before government got involved, doctors actually made house calls. While I'm only 51, I remember them as a child.

Jeffrey West, Stossel discussed the NYer piece in this article

http://jewishworldreview.com/0609/stossel061009.php3

My grandmother was rushed to the hospital a few months ago after she momentarily fainted. It turned out to be nothing, but the state gave her an expensive looking wheel chair and a specialist who checked up on her for several weeks, among some other things she didn't need. All through medicare.

Dennis:

Johh used the term fraud in a very brad sense. Straight forward fraud investigation would be a very small part of an insurer's admin expense. However, claims adjudication/review, membethip review, underwriting, plan design and care management are a huge part of what insurers spend their admin dollars on. Let's call thess types of activities indirect cost controls. Direct controls would be provider contracting, fraud investigation, etc. They do these activities to hold down costs. In my opinion, Medicare does not engage in much indirect cost control.

If you think Medicare is inefficient, the other government medical program, the VA is worse. The VA is behind in 1 million claims, has subjected hundreds to HIV and hepatitis by not sterilizing colonoscopy equipment, etc. I say let Congress try out the exact system they are trying to unload on the masses for at least 2-3 years prior to moving on any changes in our current health care system.

I think libertarians, like John Stossel, make much better sense and do a much clearer job of explaining America's government and social affairs than liberals and conservatives do! That's why I like national commentators Glenn Beck, Neal Boortz and Judge Andrew Napolitano so much too!!!

My Alice in Wonderland experience with Medicare will begin in a few months when I turn 65. The wonderful benefit will be that I am now required to pay about $100 per month more into health insurance for Medicare and will continue to pay for my retiree insurance which will become secondary. So how is that a benefit?

But there is something else not a soul is talking about. Medicare is not a comprehensive health plan - never has been. In 1998, congress added preventitive benefits - but only 5 specific benefits. More recently Bush pushed thru congress Med. Part D, Medicare's first prescription drug beneift.

But still, tens of millions of seniors, on the day they get their Medicare card for part A, and find out that they have to pay for Part B (and Part D) also run out and purchase a Medicare supplement plan (Medi-gap) - from private insurers. Why? to make the almost worthless Medicare coverage whole!

Imagine how it's costs would soar if it were "changed" to become a comprehensive plan.

Since 1970, the growth in the cost per member for Medicare, has far outpaced the growth in the cost per patient in private insurance. And that is without figuring in the cost of prescription drugs, Part D, and without the cost of private Medigap plans.

Tid bits. Just 2 weeks ago, at the same time that Rep. John Conyers and Sen. Bernie Sanders are making very passionate pleas in front of our congress to expand Medicare to cover all of us (inc. illegal's, I bet) Pres. Obama comes out and states that Medicare and Medicaid are the big problem. He's proposing to slash federal spending on the M's - by $4-600 billion, in order to pay for whatever it is that he is proposing.

How in the world do you slash spending on govenment provided health insurance, which is already deeply running in the red, while proposing to spend another $trillion+ to put everyone in the same damn program that is identified by the President as the big problem.